Alltel Still A Pricey Buy

Independent U.S. wireless operator Alltel (NYSE:AT) today reported 4th quarter (December) results above analysts’ expectations, and better-than-expected numbers on customer turnover, at least according to one analyst with a note out this morning.
Alltel’s 63 cents of profit per share, excluding some items, was nicely ahead of Thomson Financial’s consensus estimate of 59 cents, while sales of $2.1 billion came in ahead of the average estimate of $2.04 billion. What helped the company was a higher-than-expected 228,000 new subscribers, says Prudential Equity Group’s Richard Klugman, and a churn rate — how much customers abandon the company’s service — came in at 1.5%, below Klugman’s expectation of 1.7%.

Operating profit was 37% of sales, better than Klugman had expected, and even leaving out the company’s recent acquisition of Midwestern Wireless, sales growth of 8% year-on-year was strong.

So, with a rather high P/E multiple of between 8x and 9x this year’s estimated operating profit, does all this sweeten the deal for a buyout of Alltel buy leveraged buyout shops, being as the company is one of Citigroup’s favorite LBO targets? Well, in a post back in early January, I said that Goldman Sachs’s options trading group was recommending “strangles” that would place a buyout at around $65. Klugman’s price target today on the shares is $66, and the shares currently are up 2.58% at $61.99. Until there’s a clearer direction to earnings upgrades, it seems Alltel’s still a pretty pricey buy.

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